CHANNEL AND

DISTRIBUTION
STRATEGY
COPYRIGHT © 2003 BY NELSON, A DIVISION OF THOMSON CANADA LIMITED.

OBJECTIVES
1. Discuss channel strategy as one of the elements of the marketing mix.
2. Relate channel strategy to the concept of total customer satisfaction.
3. Explain the role of distribution channels in marketing strategy.
4. Describe the various types of channels in distribution.
5. Outline the major strategy alternatives in using marketing channels.
6. Identify the conditions under which a manufacturer is likely to assume wholesaling functions
rather than use independents.
7. Distinguish among merchant wholesalers, agents, and brokers.
8. Identify the major types of merchant wholesalers and instances in which each type might be
used.
9. Provide an overview of the many types of wholesaling intermediaries and their functions.

10. Describe conflict and cooperation in the distribution channel.
11.

Explain the issues involved in changing from the use of one channel intermediary type to a
different type.

ACHIEVING TRANSACTION ECONOMY WITH
WHOLESALING INTERMEDIARIES
(1 OF 2)

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Customer

Customer

Customer

16 Transactions

Customer

ACHIEVING TRANSACTION ECONOMY WITH
WHOLESALING INTERMEDIARIES
(2 OF 2)

Manufacturer

Manufacturer

Manufacturer

Manufacturer

8 Transactions

Manufacturer

Customer

Customer

Customer

Customer

and title to these goods -. .DISTRIBUTION CHANNELS The paths that are goods -.follow from producer to consumer.

Producer .MARKETING INTERMEDIARY A business firm operating between the producer and the consumer or business purchaser.

other wholesalers. . and business users but not in significant amounts to ultimate consumers.WHOLESALING The activities of intermediaries who sell to retailers.

RETAILER A store that sells products purchased by individuals for their own use and not for resale. .

DISTRIBUTION CHANNELS PERFORM IMPORTANT FUNCTIONS Facilitating the exchange process Sorting to alleviate imbalances between outputs and consumer needs Standardizing transactions Holding inventories Assisting the search process Transporting materials and products .

SORTING The process that alleviates discrepancies in assortment by reallocating the outputs of various producers into assortments desired by individual purchasers. .

ALTERNATIVE DISTRIBUTION CHANNELS (1 OF 3) Consumer Goods Direct channel Producer One-step channel Producer Two-step channel Producer Multistep channel Producer Consumer Agent/broker Retailer Consumer Wholesaler Retailer Consumer Wholesaler Retailer Consumer .

ALTERNATIVE DISTRIBUTION CHANNELS (2 OF 3) Business Goods Direct channel One-step (wholesaler) Business user Producer Producer Wholesaler channel Two-step (agent) channel Producer Agent/broker Multistep channel Producer Agent/broker Business user Business user Wholesaler Business user .

ALTERNATIVE DISTRIBUTION CHANNELS (3 OF 3) Direct channel Services Service provider One-step channel Service provider Consumer or Business user Agent/broker Consumer or Business user .

AGENT A wholesaling intermediary  that differs from the typical wholesaler in that the agent does not take title to the goods. .

.MERCHANT WHOLESALER A wholesaler who takes title to the products carried.

INDUSTRIAL DISTRIBUTOR A wholesaler that operates in the business goods market and typically handles small accessory equipment and operating supplies. .

REVERSE CHANNELS The paths follow from consumer to manufacturer or to marketing intermediaries. .

. wholesalers and retailers) in moving products from producer to consumer.FACILITATING AGENCY An agency that provides specialized assistance for regular channel members (such as producers.

WHOLESALE CUSTOMERS DISTRIBUTION Household consumers 5% Foreign markets 10% Retailers for resale 33% Industrial commercial and other users 29% Other wholesalers for resale 19% Farmers for use in farm production 4% .

WHOLESALERS Wholesaling intermediaries who take title to the products they handle. .

. as well as agents and brokers who perform important wholesaling activities without taking title to the products.WHOLESALING INTERMEDIARIES Intermediaries who assume title.

anticipates customer demands. wholesalers reduce overall transportation costs. . Risk of possible spoilage. or obsolescence is assumed when the wholesaler is responsible for transporting and stocking goods in inventory. thus providing a low-cost method of serving smaller retailers and business buyers. reducing their inventory investments. then reselling in smaller quantities)." (purchasing in carload or truckload lots. possesses knowledge of alternative supply sources. Extending credit to these customers is another form of risk taking.POSSIBLE WHOLESALING FUNCTIONS FOR CUSTOMERS AND PRODUCERS-SUPPLIERS (1 OF 2) Buying Acts as purchasing agent for customers. By "breaking bulk. Transporting Customers receive prompt delivery in response to their demands. Selling Maintains a sales force to call on customers. theft. Risk Taking Aids producers by evaluating credit risks of numerous distant retail customers and smaller business users.

. Financing Aids customers by granting credit that might not be available if they purchased directly from distant manufacturers. and provides customers with prompt delivery service. Provides financing assistance to producers by purchasing goods in advance of sale and through promptly paying bills. reduces risk and cost of maintaining inventory for producers. Provides customers with information about new products. technical information about product lines.POSSIBLE WHOLESALING FUNCTIONS FOR CUSTOMERS AND PRODUCERS-SUPPLIERS (2 OF 2) Storing Performs a warehousing function. information on competitive activities and industry trends. and advisory information concerning changes in such areas as pricing and legal rulings. Providing Marketing Information Serves as key marketing research input for producers through regular contact with retail and business buyers.

Manufacturer rents space to store inventory for shipment by the warehouse to customers in the area. package inventory. Warehouse will break bulk (divide a carload. Public warehouses Independently owned storage facilities.MANUFACTURER-OWNED FACILITIES (1 OF 2) ManufacturerOwned Facilities Description Sales branch Manufacturer-owned facility that carries inventory and processes orders to customers from available stock. . and fill orders.

Merchandise mart Permanent exhibition at which manufacturers rent showcases for product offerings.MANUFACTURER-OWNED FACILITIES (2 OF 2) ManufacturerOwned Facilities Description Trade fairs Manufacturers in a particular industry display their wares at some temporary venue for visiting retail and wholesale buyers. e. e.g. Taipei. Montreal Toy Show. .g.

Public Warehouse Independently-owned storage facility. 15-20 COPYRIGHT © 2003 BY NELSON. A DIVISION OF THOMSON CANADA LIMITED. . Sales Office Manufacturer-owned facility that does not carry stock but serves as a regional office for the firm’s sales personnel.SALES BRANCHES AND OFFICES Sales Branch Manufacturer-owned facility that carries inventory and processes orders to customers from available stock.

.TRADE FAIRS Periodic shows at which manufacturers in a particular industry display their wares for visiting retail and wholesale buyers.

.MERCHANDISE MART Permanent exhibition at which manufacturers rent showcases for their product offerings.

CLASSIFICATION OF INDEPENDENT WHOLESALING INTERMEDIARIES Independent wholesaling intermediaries Agents and brokers • Brokers • Selling agents • Manufacturers’ agents • Commission Merchants • Auction houses Merchant wholesalers Fullfunction Limited function .

MERCHANT WHOLESALERS (1 OF 2) .

AGENTS AND BROKERS (2 OF 2) .

VERTICAL MARKETING SYSTEM A network of channel intermediaries organized and centrally managed to produce the maximum competitive impact. .

THREE TYPES OF VERTICAL MARKETING SYSTEMS TYPE OF SYSTEM Corporate (1 OF 2) DESCRIPTION EXAMPLES Channel owned and operated by a single organization Bata Shoes Firestone Sherwin-Williams Singer McDonald's (partial) Administered Channel dominated by one powerful member that acts as channel captain Kodak General Electric Corning Glass .

THREE TYPES OF VERTICAL MARKETING SYSTEMS TYPE OF SYSTEM Contractual (2 OF 2) DESCRIPTION EXAMPLES Channel coordinated through contractual agreements among channel members Wholesaler-Sponsored Voluntary Chain IGA Canadian Tire Independent Druggists Alliance (IDA) Allied Hardware Retail Cooperative Associated Grocers Franchise Systems McDonald's (partial) Century 21 Real Estate AAMCO Transmissions Coca-Cola bottlers Ford dealers .

.FRANCHISE An agreement whereby one firm (franchisee) agrees to meet the operating requirements of a successful business (franchisor) in return for the right to carry the name and products of the franchisor.

CHANNEL SELECTION AND IMPLEMENTATION PROCESS Select the appropriate type of channel based on • market factors • product factors • competitive factors Determine distribution intensity • intensive distribution • selective distribution • exclusive distribution Negotiate arrangements with channels Support channels .

FACTORS AFFECTING CHOICE OF DISTRIBUTION CHANNELS (1 OF 2) FACTOR CHANNELS TEND TO BE SHORTER WHEN Market Factors Consumer market or business market Geographic location of target market Customer service needs Order size Users are in business market Customers are geographically concentrated Specialized knowledge. and regular service needs are present Customer places relatively small number of large orders Product Factors Perishability Technical complexity of product Unit value Products are perishable. technical know-how. either because of fashion changes or physical perishability Products are highly technical Products have high unit value .

FACTORS AFFECTING CHOICE OF DISTRIBUTION CHANNELS (2 OF 2) FACTOR CHANNELS TEND TO BE SHORTER WHEN Producer Factors Producer resources -. and marketing Product line Manufacturer possesses adequate resources to perform channel functions Manufacturer has broad product line to spread distribution costs Need for control over the channel Manufacturer wishes to control the channel Competitive Factors Need for promotion to channel members intermediaries Manufacturer feels that independent intermediaries are inadequately promoting products . managerial.financial.

DETERMINE DISTRIBUTION INTENSITY Intensive Selective Exclusive .

INTENSIVE DISTRIBUTION A form of distribution that attempts to provide saturation coverage of the potential market. .

SELECTIVE DISTRIBUTION The selection of a small number of retailers to handle the firm’s product line. .

.EXCLUSIVE DISTRIBUTION The granting of exclusive rights by manufacturers to a wholesaler or retailer to sell in a geographic region.

LEGAL PROBLEMS OF EXCLUSIVE DISTRIBUTION Exclusive dealing Tied selling Market restriction .

a retailer) from handling competing products. .EXCLUSIVE DEALING An arrangement whereby a supplier prohibits a marketing intermediary (either a wholesaler or. more typically.

TIED SELLING An arrangement whereby a supplier forces a dealer who wishes to handle a product to also carry other products from the supplier or to refrain from using or distributing someone else’s product. .

.MARKET RESTRICTION An arrangement whereby suppliers restrict the geographic territories for each of their distributors.

CHANNEL CAPTAIN The most dominant member of the distribution channel. .

CHANNEL CONFLICT Rivalry and conflict between channel members because of sometimes different objectives and needs. .